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Abstract: How does employment protection legislation affect the labor market position of immigrants? We investigate this question, which has scarcely been studied in a robust way previously, even though it is highly relevant from a policy perspective. A natural experiment enables us to identify a causal relationship between the reform of an employment protection law and the employment status of immigrants in Sweden. The experiment took the form of a partial reform of the Swedish employment protection law in 2001, which made it possible for firms with ten employees or less to exclude two workers from the last-in-first-out rule when dismissing personnel. Our results show that the reform positively affected the decision to hire groups that were relatively close to insider status but that the reform had no effect on decisions to hire non-western immigrants. We also find that the reform mainly increased net-hires of natives that were unemployed or outside the workforce, showing the importance of considering the labor market status of individuals when evaluating the effects of changes in employment protection legislation.

Keywords: Employment protection; immigration; integration; hires; separations

JEL-codes: D22; J15; J21; J23; J61; J82; K31; L25

33 pages, August 7, 2017

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